Column: Crop prospects uncertain due to energy costs

The recently released 2006 Economic Outlook for Georgia’s Food and Fiber Industry confirms what many of you already have heard if you’ve attended any of the winter commodity meetings this year. Mainly, that prospects for this year remain uncertain with energy prices expected to affect almost all crop production inputs, from fuel to fertilizers.

Georgia agribusiness was poised for a relatively profitable year in 2005 until hurricanes blew ever-increasing energy prices into the picture, states the outlook, which was prepared by economists with the University of Georgia College of Agricultural & Environmental Sciences. Most of agriculture already had seen somewhat high fuel and energy costs before the price hike from hurricanes Rita and Katrina, and the storms only exacerbated the problem. Harvesting and processing were especially impacted in late 2005.

As producers look for ways to manage higher costs, the main adjustment may occur in fewer acres planted, thus decreasing the total amount of inputs required, according to the report.

Meanwhile, Georgia’s animal agribusiness sector shouldn’t be affected as much by energy prices as the crops sector. Demand for most animal products remains good, with low feed prices brought about by large national crops as well as continued good prospects.

Everyone knows by now that Georgia experienced a significant gain this past year in peanut acreage, up to 760,000 — the largest crop since 1991. Lower prices for corn and cotton, combined with higher fertilizer prices, made peanuts more attractive for growers, not only in Georgia but throughout the Peanut Belt, as witnessed by a 2-million-ton U.S. crop.

Supply and demand for peanuts have moved in the same direction during the past couple of seasons, but the 2005 increase in consumption wasn’t enough to keep pace with the increase in production, and that’s not good news for producers.

Domestic food use has been the source of growth for the peanut market during the last three years, and the USDA forecast for the 2005-06 marketing year is for food use to continue to increase by 7 percent. Further growth in peanut use will have to come from the export and crush markets. With a crop of more than 1 million tons, a larger ending stock of peanuts is projected at 880,000 tons to be carried over to the 2006 marketing year. With the projected surplus, it’s expected that the majority of peanut growers will go into the marketing loan program.

For the 2006 crop year, producers will be faced with tough decisions on crop enterprise mix and acreage, states the outlook report. And although peanuts require relatively little fertilizer, it is a capital-intensive crop.

Acreage for Georgia’s other major row crop — cotton — has moderated in recent years. Compared to the high of 1.5 million acres in 1995 and again in 2000, Georgia farmers planted 1.29 million acres in 2004 and 1.22 million acres in 2005. And, compared to a string of mostly poor years from 1995-2000, yields have improved due to better varieties and more favorable weather, setting a new state record yield of 853 pounds per acre in 2005.

For 2006, the forecast is for the state’s cotton acreage to be about 1.2 to 1.3 million acres. Although cost increases in nitrogen, fuel and chemicals would seem to work against an increase in cotton acreage, cotton is coming off a very good year yield-wise in 2005 compared to peanuts. Optimism could carry over to increased plantings in 2006, but much also will depend on the contract/price prospects for peanuts at planting time, states the report.

With the decline of the U.S. domestic textile mill industry, we must consistently find a home for 13 million to 16 million bales of cotton annually. To date, this hasn’t been a problem thanks to the tremendous growth of the textile industry in China. China is the No. 1 market for U.S. exports, typically getting 40 to 50 percent of its import needs from the United States.

World demand continues to increase, say the economists, although at a slower pace. Demand increased 5.6 percent for 2005-06 compared to 10.2 percent for 2004-05. This could be a cause for concern as U.S. exports are clearly dependent on foreign demand.

World stocks of cotton are expected to be down slightly at the end of the 2005 crop marketing year on July 31. The stocks-to-use ratio is expected to be 44.3 percent compared to 47.3 percent for the 2004 crop. This tighter position should support prices but there is still an adequate supply of cotton to keep a lid on prices until we know more about the production and supply prospects for 2006.